Expansion of nuclear plant near Houston is on ice

Reactor one of the South Texas Project nuclear power plant is seen on Friday, Dec. 6, 2013.

Reactor one of the South Texas Project nuclear power plant is seen on Friday, Dec. 6, 2013.

Photo: Billy Calzada, Staff

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C.J. Medina works in the reactor control room of the South Texas Project.

C.J. Medina works in the reactor control room of the South Texas Project.

Photo: Billy Calzada, Staff

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Mark Hill, unit supervisor, looks over gauges at the South Texas Project nuclear power plant on Friday, Dec. 6, 2013.

Mark Hill, unit supervisor, looks over gauges at the South Texas Project nuclear power plant on Friday, Dec. 6, 2013.

Photo: Billy Calzada, Staff

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The South Texas Project, about 90 miles southwest of Houston, has two reactors. Longstanding plans call for two more.

The South Texas Project, about 90 miles southwest of Houston, has two reactors. Longstanding plans call for two more.

Photo: Billy Calzada, Staff

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A large diesel fuel holding tank sits on the grounds of the South Texas Project nuclear power plant on Friday, Dec. 6, 2013.

A large diesel fuel holding tank sits on the grounds of the South Texas Project nuclear power plant on Friday, Dec. 6, 2013.

Photo: Billy Calzada, Staff

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Technicians keep watch at the radiation protection command center at the nuclear plant.

Technicians keep watch at the radiation protection command center at the nuclear plant.

Photo: Billy Calzada, Staff

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Mark Hill, unit supervisor a the South Texas Project nuclear power plant, jots down information in a control room on Friday, Dec. 6, 2013.

Mark Hill, unit supervisor a the South Texas Project nuclear power plant, jots down information in a control room on Friday, Dec. 6, 2013.

Photo: Billy Calzada, Staff

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Twenty five years worth of radioactive spent fuel rods are stores in this pool at the South Texas Project nuclear power plant on Friday, Dec. 6, 2013.

Twenty five years worth of radioactive spent fuel rods are stores in this pool at the South Texas Project nuclear power plant on Friday, Dec. 6, 2013.

Photo: Billy Calzada, Staff

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Twenty five years worth of radioactive spent fuel rods are stores in this pool at the South Texas Project nuclear power plant on Friday, Dec. 6, 2013.

Twenty five years worth of radioactive spent fuel rods are stores in this pool at the South Texas Project nuclear power plant on Friday, Dec. 6, 2013.

Photo: Billy Calzada, Staff

Expansion of nuclear plant near Houston is on ice

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MATAGORDA COUNTY - On a dreary December day, Buddy Eller stood against the railing atop a giant concrete building that housed a steam-driven turbine, critical to the operation of the South Texas Project's two nuclear reactors.

The containment domes covering those reactors towered over the scene.

Eller, a spokesman for the plant, pointed west to a vast tract of empty land. Over there, he said, was where they'd build units three and four. He was referring to longstanding plans to add two reactors to nuclear facility, located miles away from the communities that dot the flat lands near Matagorda Bay.

But that plan is in deep freeze.

Low natural gas prices and renewed fears of nuclear accidents after the 2011 tsunami in Japan combined to effectively stop the nuclear power industry's renaissance. In Bay City, the small-town home of the plant, the promise of adding two reactors to the complex is fading fast - and with it, all of the economic growth the town had been banking on.

With a workforce of 1,200, the plant is Matagorda County's biggest employer.

"It was an electric feeling. People couldn't wait to get started and have two more units of one of the businesses that brought us to greatness," County Judge Nate McDonald said, describing the reaction when NRG Energy - the facility's majority owner - announced its intentions to build the reactors in 2006. "Having a double helping of that was something that everyone looked forward to, and when I say everyone, I mean everyone."

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CPS Energy, San Antonio's municipal utility, and Austin Energy also are owners of the plant.

The first major delay for the expansion came four years ago when CPS Energy, one of the main partners in the project, pulled out after unofficial cost estimates came in far above earlier projections. Then a potential major investor - Tokyo Electric Power Co. - withdrew after a tsunami devastated its Fukushima nuclear plant and three reactors suffered meltdowns.

The project's other major original investor, NRG Energy, announced it would stop financially supporting the project. Collapsing natural gas prices, it said, made the project uneconomical.

NRG still owns 90 percent of Nuclear Innovation North America, or NINA, its joint venture with Toshiba Corp., which is in charge of developing and building the two new reactors. The process of obtaining the licenses to build and operate the reactors continues to move forward, though it now is funded solely by Toshiba.

Nevertheless, several people involved in the project concede the effort to build the reactors will stay stuck in neutral as long as natural gas prices remain low.

"The excitement was and still is here," McDonald said. "Indeed, this isn't a dead project - it's not even a furloughed project. But market conditions have to improve."

Schools feel delay

The delays have forced local institutions to make changes.

The Bay City Independent School District, which has faced declining enrollment like many rural districts, had been working to upgrade and renovate its seven schools in preparation for the influx of construction workers, district Superintendent Keith Brown said.

After the Fukushima disaster, when it became clear construction on the two reactors wouldn't begin anytime soon, Bay City ISD closed two schools and merged the students into the five that remained, Brown said.

"If we didn't anticipate 3 and 4 coming, those other two schools would have been closed a long time before," he said.

Matagorda County, meanwhile, has set its sights on bringing other employers to the area - and last year scored a major win.

It's "given my economic development team a new resolve," McDonald said.

Tenaris was looking for a home for a $1.5 billion seamless pipe mill, and it selected Matagorda County. The company broke ground on the pro-ject in 2013.

As for the expansion delays, "at the end of the day, this is all business," McDonald said. "These are huge investments, and there has to be return on investment."

Others have faltered

The planned expansion of the plant, which is about 90 miles southwest of Houston, isn't the nuclear industry's only project to lose momentum because of the U.S. shale revolution made possible by hydraulic fracturing.

Over the last five years, as natural gas production has soared largely because of fracturing, prices have fallen dramatically. In December 2013, gas was less than half the price it was in June 2008, according to the U.S. Energy Information Administration.

That collapse caused the wholesale price of electricity to fall, reducing the profitability of nuclear power.

Nuclear shutdowns

"Low natural-gas prices means low wholesale prices, which means if you're trying to recoup your money in a nuclear power plant, it's harder to do," said Lucas Davis, an associate professor who studies energy and environmental economics at the University of California, Berkeley.

Last year, Entergy said it would close its Yankee Vermont nuclear power plant in late 2014. The utility cited the effect of cheap natural gas, according to the Boston Globe. And Dominion Resources closed down the Kewaunee nuclear power plant in Wisconsin last year after failing to find a buyer, Reuters reported. The company cited low gas and electric prices as reasons for failing to sell it.

"At this point, the new nuclear in Texas ... it's just not sufficiently competitive to play against natural gas," NINA CEO Mark McBurnett said. But, in spite of the low natural gas prices, utilities in Georgia and South Carolina have started construction on reactors in their states.

The economic challenges aren't the only roadblock to building reactors 3 and 4. Regulators have been scrutinizing the pro-ject's ownership structure.

The Nuclear Regulatory Commission issued a finding last year that a foreign company - Toshiba - was too heavily involved, violating a federal law that forbids companies owned, controlled or "dominated" by a foreign entity from holding a license to run a reactor.

"In this case, it's not so much ownership as it is the financing behind NINA, which raised the issue of whether or not NINA would be foreign controlled or dominated," NRC spokesman Scott Burnell said. "Our technical staff came to the conclusion that yes, it would be considered foreign controlled or dominated, and therefore wasn't eligible" for a license.

No decision yet

The matter was sent to a panel of three administrative judges, who held a hearing in January in Houston. A decision hasn't yet been issued.

"We believe we presented a strong case and believe our case and our position really supports it. Fundamentally, the point we make is that NINA is 90 percent owned by NRG, and NRG votes 90 percent of the board," NINA's McBurnett said, adding that nothing of real interest to regulators can take place without NRG having direct control.